4-1/2 years ago I decided to go back to school for Dental Hygiene. My wife would not let me work during the four years of school and her income did not quite meet all our expenses. I took out private loans to pay for school and living expenses plus rolled an old HELOC loan into our fianal school tab which now stands at about $110,000.
In October we were able to sell a rental property (it was always just breaking even each month, so not a major contributer to our income) and banked the proceeds in 3 CDs; a 3 month CD of $30K to hopefully take care of the capital gains this year (we have not lived in the house for 7 years) another for $10K for 12 months (we’re hoping to move to a warmer climate) and a third CD of $25K for 16 months (new house downpayment).
Here in Utah I have been unable to get more than 3 days a week employment and recently my hours were cut because one of the Dentists (Hygienists are required to work under some form of supervision of Dentists), has left the practice leaving me to work just 2 days a week now. Our present situation is that we left $20K in our checking account for living expenses and have managed to stay at that level since October 2008. We have no other bills (we replaced our aging cars with a new Mercury Hybrid and used Volvo) and our house mortgage is at 5.875%, $850 p/m and due to adjust in June of 2011 (we are shopping for loans now, just waiting to pounce on the perfect rate).
My question is: How might I negotiate paying less on my student loans ($12.000 to Wells Fargo and $98,000 to Next Student) than I am paying now. I have a payment of $900 per month combined. My dream is to pay 50 cents on the dollar, but it’s only a dream. In our present state of financial difficulty, are banks willing to negotiate?
I asked my friend Mike Killian to answer your question for you. I wanted to make sure you got an answer as quickly as possible as I’m a bit backed up at the moment. I’ll be watching the comments on this question and be around to help if you need me.
Before discussing student loan negotiating, have you communicated with your schoo’ls student aid office and have you tried to have the lender suspend or reduce the payment? By seeing a financial aid officer and communicating with your lender, at least your appearance will be one of trying to repay.
And though this may not be applicable to you, you need to be aware of the new Income Based Repayment Plan passed this past summer. You should look at it to see if it holds any hope for you.
The basic answer to your question is I don’t know. They may or may not. But my recommendation is to contact a professional debt negotiator and check out the facts before doing so.
As with most debt negotiations you or a professional debt negotiator offer less than what you owe…. Say 50%. That sounds good on the surface but has some drawbacks. In order for a creditor to take less than agreed, they will have to think that is the best they will do. To make them think that, you usually stop payment to them so that they think you will be declaring bankruptcy. The negotiator often “holds” your payment and often simply keeps it as payment. If the negotiator successfully settles your debt for less than owed, a lump sum payment is usually required. Of course in the process your credit is completely destroyed. Additionally any debt forgiven above $600 will be taxable by the IRS as added income. Debt negotiation is rarely recommended for the preferred solution.
Obviously before you take this action, you want to talk to a Financial Aid officer for any other options that might be available.
I wish I had better news.